Better Trade Data Doesn't Stop Consumer Sentiment from Plunging

A bit of a mixed bag of economic numbers and a somewhat surprising take on second quarter GDP highlight the economic news Friday.

First, consumer sentiment took a dive. It went from 70.8 in June to 64.6 this month. The expectation had been that it would drop to 70.5 which once again stands as a testament to the ability of the economics profession to forecast anything. It would seem that the people actually out living in the economy and feeling the pain have a slightly different view of things than do the computers.

Second, though it might not be that surprising, the trade deficit declined. Exports were up by 1.6% and imports down 0.6% from last month. That resulted in a decline in the deficit of $2.8 billion as it decreased from $28.8 to $26 billion.

Now while a decline in the trade deficit is always a welcome development, some economists are reading a lot into this number. This is from the WSJ Real Time Economics blog:

Was the better-than-expected May trade report enough to finally push GDP into the black? Macroeconomic Advisers thinks so.

Prior to Friday’s data (which showed a surprising narrowing in the trade gap to $25.96 billion in May) Macroeconomic Advisers expected a 1.6% GDP decline in the second quarter, at an annual rate.

Now, the firm sees second-quarter GDP up 0.2%, a 1.8 percentage point upward revision. That would be the first positive GDP result since the second quarter of 2008.

RDQ Economics also noted the potential for a positive GDP number. “At a minimum, this suggests that the decline in real GDP should be less than current forecasts (we think that a drop of 0.5% rather than 1.5% in the second quarter is now a central forecast for GDP) and there is a significant possibility that real GDP could actually grow slightly in the second quarter, which would further add to our view that the recession ended last quarter,” economists said.

Other economists didn’t see as large an effect. Morgan Stanley revised its forecast to a 1.1% contraction from a previous forecast of a negative 1.5% print.

Goldman Sachs said the report means their forecast for a 3% GDP contraction is likely too negative. Nigel Gault of IHS Global Insight also didn’t offer an exact figure, but said the trade data indicate that any second-quarter GDP contraction will be under 2%.

I’m not sure I buy into their arguments but it’s always nice to see some positive opinion. As this chart from EconomPicData.com shows the declines might be leveling off but there isn’t any obvious growth.

More second derivative type of stuff.

More here and here.

Comments

[User 357705:]

Hard to have positive sentiment when all the good jobs have been destroyed and shipped to other countries.

Jul 12 02:57 PM

[jstratt:]

The sentiment isnt really surprising. After punishing blows to consumer wealth and jobs it hit lows.

After seeing an end to further freefall, sentiment rose. A mix that included positive news that major banks were stable and better capitalized than previously thought sounded good.

Now people are beginning to realize that we are in for a longer downturn. The hope that a recession will end this year is declining. Further a technical end to the recession still only implies that we scrape across a bottom rather than return to the good old days of buying BMWs, RVs, Boats, Motorcycles and expensive vacations paid for by the home equity cash register.

It appears destined to get darker in the next few months. Then when it isnt expected house prices will stop falling late this year or early next year. Some cars will be bought and employment will stabilize at 10% unemployment.

By 2012 much debt will have been purged from the system. Loan standards will remain tighter but reasonable risk loans will be made. People will be satisfied that the reality is they wont have a big cash register ever again from which to spend wildly.

Jul 12 06:34 PM

[conceptwizard:]

Today’s credit crisis finance bubble will make the residential and commercial bubble look like a joke. Multiply by 5 or 10. Who knows where this can end up? The bomb is in the air and hasn’t even hit yet. The quality of Treasury, GSE (Fannie Mae and Freddie Mac), CDO and ABS falls every day. The debt is massive and it is not producing real economic wealth creation. This is a tremendous drag on the system. Wage increases are miniscule, inflation grows as purchasing power falls as does general confidence. There is major misallocation of assets and a maladjusted economic structure that can only end in dire inflationary consequences.

The private creation of real jobs has generated about 100,000 jobs a year and the public sector more than double that, or 240,000 a year. Most jobs created over the past ten years have been low paying. 290,000 have been created in healthcare, 157,000 in food and drinking establishments and 139,000 in government education. Declining jobs, free trade, globalization, offshoring and outsourcing, have decimated living standards and have caused a massive transfer of wealth to BRICs; OPEC and slave labor countries that cheapen their currencies by manipulating them and by subsidizing their industries. In just the first quarter GDP fell 5.5% due to a decline in inventories and trade. The 37.3% decline in business investment and inventories was a record. The greatest decline since 1947 when records began. The 38.8% decline in homebuilding is the largest contraction since 1980.

Next comes the planned reduction of Fed market support programs, including swap lines with 14 international central banks, due to expire in October to February. The Fed says it will reduce the maximum size of its term securities lending facilities, TSLF, from $200 billion plus options, and the maximum size of its term auction facility, TAF, to $500 billion from $600 billion. This is part of the Fed’s glide path to normalization. This rhetoric can’t happen unless the Fed has finally decided to allow deflation to take over and I do not see that happening.

Jul 12 07:32 PM